great!From good to Annual Report 2005-06 Balaji Telefilms Limited Balaji Telefilms www.balajitelefilms.com A TRISYS PRODUCT, PRINTED BY MAGNA GRAPHICS (INDIA) LTD. Forward-looking statement In this Annual Report we have disclosed forward-looking information to enable investors to comprehend our prospects and take informed investment decisions. This report and other statements - written and oral - that we periodically make, contain forward-looking statements that set out anticipated results based on the management’s plans and assumptions. We have tried wherever possible to identify such statements by using words such as ‘anticipate,’ ‘estimate,’ ‘expects,’ ‘projects’ ‘intends,’ ‘plans,’ ‘believes,’ and words of similar substance in connection with any discussion of future performance. We cannot guarantee that these forward-looking statements will be realised, although we believe we have been prudent in assumptions. The achievement of results is subject to risks, uncertainties and even inaccurate assumptions. Should known or unknown risks or uncertainties materialise, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated or projected. Readers should bear this in mind. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. Brand identity 02 What a year at Balaji 03 Chairman’s overview 04 Managing Director and CEO’s review 10 Creative Director’s overview 16 Balaji programmes, 2005-06 24 Management’s discussion and analysis 28 Contents Balaji’s drivers of growth 34 Operational review 38 Financial review 42 Ratios 48 Risk management 50 Corporate information 54 Board of Directors 54 Directors’ report 56 Corporate governance 60 Financial section 72 1 Brand identity India’s leading television content brand What a year at Balaji Telefilms Largest entertainment software production house in India Balaji! is the number More than a successful player; credited with having one redefined the business space Enjoys a leading share of India’s small screen content- entertainment providing business Shares listed on the Mumbai and the National Stock software Exchanges Promoted by veteran Indian actor Jeetendra Kapoor, his provider in wife Shobha Kapoor, daughter Ekta Kapoor and son Tusshar Kapoor; promoter family owns 42% of the potentially the Company’s equity second largest television entertainment market in the world We produced more 41% increase in profit before tax from Rs. 6237 lacs in 23% increase in programming hours from 1720 in 2004- 2004-05 to Rs. 8798 lacs 05 to 2113 in 2005-06 44% increase in profit after tax from Rs. 4129 lacs in Seven new programmes launched 2004-05 to Rs. 5942 lacs Extension into the non-fiction space We invested more We realised more Investment of Rs. 1090 lacs in three new state-of-the- 26% increase in commissioned programme realisations art studios in Mumbai from Rs. 17.70 lacs per hour to Rs. 22.22 lacs per hour We enriched more We were viewed more 108% increase in the Company’s market capitalisation Presence of 22 of its programmes in the top 25 across to Rs. 120542 lacs (as on 31st March 2006) Hindi cable and satellite channels We generated more 43% increase in revenues from Rs. 19675 lacs in 2004- 05 to Rs. 28037 lacs 2 3 Chairman’s overview After two years of a relatively flat performance, I am category and four new shows in the commissioned We expect Hindi to remain the preferred language of “We expect to pleased to report an attractive rebound at Balaji Telefilms category entertainment for India’s masses – within and outside for 2005-06. the country We translated our position as Star’s leading content emerge as the The Company grew its topline by 43%, bottomline by supplier into attractive revenues, and strengthened our We expect Balaji to retain its position as the primary 44% and market capitalisation by 108% during the year spread across more channels on favourable terms Hindi entertainment content Company, having under review, indicating that it had enhanced value for its accounted for 88% of the most viewed programmes in single biggest We extended beyond the small screen to the big screen shareowners across a number of parameters in a 2005-06 comprehensive way. with films like Kya Kool Hain Hum and Koi Aap Sa, beneficiary of capitalising on our established infrastructure I thank you for your continued support over all these years Industry challenges which has helped the Company reach this enviably strong the CAS It might be tempting to believe that the Company’s Industry changes position in the industry. performance improved in line with the general economy; Looking ahead, the biggest change in the business is With regards, environment!” in my mind, the rebound was the result of some proactive going to be the nationwide introduction of the conditional Jeetendra Kapoor, Chairman, Balaji Telefilms, initiatives by the Company in the face of changes in the access system (CAS). This is going to translate into the reviews 2005-06 way we live, work and entertain ourselves. following changes: Jeetendra Kapoor Consider the following: Consumer: Greater influence in demanding niche content Chairman Most consumers are confused with the sharp increase Channel: Gradual evolution from general to niche themes; in the number of channels on offer; this has reduced bouquet pricing to specific pricing; greater emphasis on viewer recall widening reach and influencing advertising rates; greater Most viewers are getting increasingly selective about ability to price in line with the demand for the programme what they want to watch; the general approach in content creation is out Content creator: Closer linkage between content and revenues; greater willingness to work with channels with Most people have a larger number of choices about wider and deeper marketing; better ability to negotiate what to do with their time today; this is making it rates based on viewership; movement from general to difficult to predict viewer habits niche content Most employees are working harder and longer; they can barely catch an episode or two especially if it is early As we see it at Balaji Telefilms, the transition from an in the prime time cycle advertiser-driven revenue to a pay-TV model will only strengthen the market for companies with superior Value game content creation capability. Balaji Telefilms embarked on a value-led response to this evolving scenario in 2005-06 through the following Outlook initiatives: Interestingly, we see Balaji Telefilms emerging as perhaps the single biggest beneficiary of this transition for a We launched three new programmes in the sponsored number of reasons: 4 5 Good to great! Most businesses targeted a simple turnover growth over the previous year. Balaji Telefilms took only 9 months of 2005-06 to surpass its 12 month turnover of 2004-05. hat you see in a minute takes us weeks W to conceptualise. So the truthful reality in the business of entertainment software is that production increase is not as simple as pressing a button and collecting products off the conveyor belt. At Balaji Telefilms, we are proud to report that in a painstaking 2005-06, we increased content production by 19% over the previous year. 6 7 Good to great! Most businesses continued to fight for shrinking market share. Balaji Telefilms accounted for 22 of India’s top 25 programmes (Hindi cable and satellite channels) in 2005-06. ook around you, competition is increasing in every business. The pioneers L of yesterday are in a number of instances also evolving into the commodities of tomorrow. At Balaji Telefilms, we are proud to report a completely different reality. Even after nearly eleven years of presence, we actually increased our share of the market, not just protected it. So even as our industry evolved from nascent to mature, Balaji Telefilms occupied every single slot between number one and 21 in one of the world’s fastest growing entertainment software market in 2005-06. A domination perhaps unparalleled across most visible businesses in India today. 8 9 Managing Director and CEO’s review Company reported a 43% increase in its topline and a generated a 18% increase in realisations per hour, the be earned. Let us take the first: the launch of varied 44% jump in its bottomline during the year under review. highest earned by any content provider in our business in distribution platforms - DTH, IP-TV and DSL - is expected “De-risking at a the country and around three times the industry average. to reshape the industry landscape in the form of What were the highlights of the Company’s working in The latter is related to the first: in fact, increase in competition in the last mile, influencing cable and satellite time of growth!” 2005-06? realisations transpired only because Balaji was penetration and subscription revenues. This means that Shobha Kapoor, Managing Director and CEO, Balaji In one word, de-risking. In our business, where consumer instrumental in its channel customers reporting higher the viewer will have the option of selecting specific Telefilms, reviews the financial year 2005-06 preference is influenced by hundreds of variables – it TRPs and in turn, generating incremental advertising channels, enhancing her control on what is beamed into could be something as trivial as a traffic jam – we widened revenues. As a result, both Star Plus and SET (primary her residence. In this respect, we are probably better our exposure across newer channels, geographies, time customers) are today as much dependent on Balaji for placed than our competitors because the TRPs clearly At Balaji, profits have rebounded after a gap of two years slots and formats. While an exhaustive review of our de- their content (and hence advertising revenues) as we are indicate our superiority in this area.